how much is usual to have in your pot by say, early 30's and early 40's

Loughton_Monkey

The_White_Horse wrote: »

i know it is dependant on what you earn (and how it grows over time), but broadly speaking if you are say, 30 now - what would you need in there to have a decent pension at 66?

TWH

Here would be a 'rough' but reasonable way of looking at it in very round figures.

Write down (in today's terms) what you think a 'decent pension' would be. To you. Don't fall into the trap of estimating the samllest figure you think you could just about live on. Get a figure somewhat akin to what you spend on lifestyle today.

Now deduct what you know you would get from the state pension. I guess £7K is not a bad figure.

So what you end up with is the 'gap'. i.e. the extra income you need.

Now, take the equivalent annuity rate for an inflation proofed pension for a 66 year old. This will be in the order of 4.5% maximum.

So divide the 'gap' in income [let's say you get £10K], by the 0.045 to get the equivalent pension pot requirement. In this example we get £222K

So now you have a rough idea, in today's values, as to the amount of cash/pension pots that you would wish to see when you retire. NOW all you need to do is consider inflation between now and then.

It sounds a tall order, and usually is. This is why the 'traditional' concept of working for 40 years on a 60ths 'Final Salary' scheme has been truthfully costed at around 25% of your entire salary, for your entire working life. Once you put around 30% away [as I find I did one way or another] you can retire gracefully at, say, 56 and have a 'decent' income for the rest of your life. The more you depart from the 25%, then the more you only have 2 choices. 1. To work beyond your normal retirement age, or 2. Take a drop in living standards when you retire.

I find it interesting to discuss this matter in another (theoretical) way........

Imagine that you left school/university, and got a job with an employer. You sat down with that employer and agreed - best intentions all round - a specific career path, a specific salary (including reasonable real pay rises) etc. So you end up signing a contract to supply your 40 years of 'honest labour' and your employer calculates and transfers the entire lifetime earnings to your bank account.

Now what would your strategy be regarding handling of that cash?

1. A complete idiot would divide that by 40, and take out 1/40th every year. [adjusting for interest etc.] He would know that once he got to 65, his bank account would be zero.

2. A reasonable intelligent person would estimate how long they might live. Say 85. Then that person would divide the amount by 85. Again adjusting for interest etc. He would find, in very round figures, that he would be living off about 75% at the most of the person who followed calculation (1).

But in the real world, many people are unwittingly choosing option 1. Good psychologists might be able to explain why so many people do this, and yet most of them - if cast away on a desert island with 6 months food and a promise they will be rescued exactly 6 months later - would not scoff the food entirely within the first 2 months.

But personally I cannot explain it.

utigers

I've heard that 35k at 35 a few times before and half your age that should be the percentage of wages contributed before etc........ These are obviously guides and maybe used for people to think about how close they are to these figures.

When people talk about 'pots' surely a family sized house that you wont require at 60+ as you would be downsizing should be taken into consideration.

For example if we didnt have a mortage and we were downsizing, in todays money we would have £150k to invest for income add this to 2 pension schemes and you can see that this can also be included in part of the pot.

dunstonh

When people talk about 'pots' surely a family sized house that you wont require at 60+ as you would be downsizing should be taken into consideration.

Potentially. However, in our area, a good size 4 bedroom detached is about £190k. A small 2 bed terrace of equal quality is about £130k. So, assuming you really want to downsize that much, you only gain £60k. Knock out £10k for costs and you get £50k. That wont go very far.

Plus, you will be surprised how difficult it actually is to downsize unless you have a large enough house to make it sensible.

DavidHayton

dunstonh wrote: »

Potentially. However, in our area, a good size 4 bedroom detached is about £190k. A small 2 bed terrace of equal quality is about £130k. So, assuming you really want to downsize that much, you only gain £60k. Knock out £10k for costs and you get £50k. That wont go very far.

Plus, you will be surprised how difficult it actually is to downsize unless you have a large enough house to make it sensible.

I agree with Dunston ... also the problem of downsizing is that it involves where you live. I can sell a unit trust to buy an annuity and all I have "lost" is an investment fund. If I try to do the same with my house, it affects - quite literally - my place in society.

I worry when people refer to their home as their pension. I don't think that downsizing to release cash will be as easy as they think.

David

de1amo

i think i shall retire to norfolk as 2 bedroomed flats are about 190k in my neighbourhood!--i like east harling that way!

İ havent got a clue whether i am building my pot the right way--i am just doing all i can to spread the options as well as i can in my 'portfolio'--i have seen how crap the returns were on my endownment and know annuities are showing poor yields and have done for years now.--spread the exposure and dont put all your eggs in one basket.-i have a paying pension worth about 145k, a flat i can rent out as well as the place we live in--i am building a family business that my younger wife will run well into my retirement and our daughter take over after.

About all that is negative in my housing situation are the stairs --i am happy living in a flat with my family but in my old age i dont want to be climbing any stairs -be it in a house or stairs to a flat--ground floor living when time comes!

cyclonebri1

DavidHayton wrote: »

I agree with Dunston ... also the problem of downsizing is that it involves where you live. I can sell a unit trust to buy an annuity and all I have "lost" is an investment fund. If I try to do the same with my house, it affects - quite literally - my place in society.

I worry when people refer to their home as their pension. I don't think that downsizing to release cash will be as easy as they think.

David

I agree and when you factor everything in that's involved at either end of a downsize you are probably dropping something like 15% of your "pot" in a single move. :eek:

ERICS_MUM

Just to give you an idea. I have just under £600,000 in my pension pot. I'm 55 and had to retire at 54 due to ill health. I get £28,000 p.a. gross pension (occupational final salary).


P.S. I joined the pension scheme at 18 as soon as I started work and stayed at that company all my working life.